Cannabis Stocks Rally on Schumer’s Push for Legislation

On Feb. 1, Senate Majority Leader Chuck Schumer and fellow Democratic Sens. Cory Booker and Ron Wyden announced their intentions to push major federal cannabis legislation. They plan to release a discussion draft in the early part of this year. We still think legalization is likely going to take a couple of years, as we forecast a change to federal law by 2023. Nevertheless, legalization sooner than that would unlock growth and capital access sooner but doesn’t change our estimated market potential of $85 billion by 2030 compared with an estimated $15 billion in 2020, according to the Marijuana Business Daily.

In the statement, the senators said they intended to gather input from all stakeholders and include social equity measures for the benefit groups. In addition, as we’ve noted before, even with the Democrats controlling the Senate legislation agenda, any form of federal law will require 60 votes and thus, Republican support. Additionally, the statement included the phrase “ending federal marijuana prohibition” rather than “national legalization." As such, we continue to believe that the most likely outcome is the removal of federal prohibition and the recognition of a state’s right to set its own cannabis laws within its borders.

Curaleaf CURLF and Green Thumb GTBIF rose by mid-single-digit percentages, while most Canadian names rose by double digits. As our views and forecasts remain unchanged, our fair value estimates and no-moat ratings are intact. Given the massive rally across the industry since President Joe Biden’s election in November, most stocks trade in 3- and 2-star territory. Only Aurora Cannabis ACB remains in 4-star territory, but we reiterate its extreme uncertainty rating underpinned by its reliance on dilutive equity issuances for funding its losses in its early growth stage.

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